Olivieri, I. v Stafford, D.H.
[1989] FCA 106
•16 MARCH 1989
Re: ITALIANO OLIVIERI
And: DONALD HARRY STAFFORD; MARTHA ANNE STAFFORD; RONALD JOHN STAFFORD AND
ALAN JAMES STAFFORD
No. B 82 of 1988
FED No. 106
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Einfeld J.(1)
CATCHWORDS
Bankruptcy - application to set aside bankruptcy notice - extension of time for compliance with bankruptcy notice - alleged defect in name of judgment creditors - alleged failure to abandon any claim in respect of interest and costs after judgment - alleged non-compliance with prescribed form - alleged overstatement of amount claimed - whether overstatement amounts to defect in bankruptcy notice - clerical errors - whether formal and curable Bankruptcy Act 1966: ss 31A, 33, 41, 306
HEARING
SYDNEY
#DATE 16:3:1989
Counsel and solicitors Mr D. McGovern
for applicant instructed by
Messrs. Galluzzo and Golotta.
Counsel and solicitors Mr G.L. Turner
for judgment creditors instructed by
Fitzgerald White Talbot & Co Solicitors
ORDER
Application is dismissed.
Debtor is to pay creditors' costs.
I shall hear the parties on the orders that should be made in relation to the moneys paid into court.
NOTE: Settlement and entry of these orders is dealt with in accordance with Order 124 of the Bankruptcy Rules.
JUDGE1
An application by Italiano Olivieri (the debtor) was initially filed on 17 March 1988 and came before the Registrar in Bankruptcy on 18 March 1988. A similar though not identical application was subsequently filed in court on 13 December 1988. What is sought are orders setting aside a bankruptcy notice (the notice), issued by Donald Harry Stafford, Martha Anne Stafford, Ronald John Stafford and Alan James Stafford (the creditors) and restraining them from taking any step to present a creditor's petition against the applicant based upon a failure to comply with the notice.
District Court proceedings
The litigation in this matter commenced on 9 December 1982 when a statement of liquidated claim was filed by the creditors in the District Court at Muswellbrook New South Wales, claiming from the debtor an amount of $12,929.90 plus interest, allegedly resulting from the hire of plant equipment and cartage of sand and gravel by the creditors for the debtor between 1 March and 24 August 1982. On 20 June 1983, an amended statement of claim was filed by the creditors claiming the amount of $13,119.90 and additional interest from 24 August 1982 to the date of judgment at the rate of 15% pa plus costs.
The debtor filed a defence on 3 August 1983 essentially denying that any contractual agreements for plant hire and cartage were entered. On 21 August 1983, a notice of motion was filed by the creditors seeking to strike out the defence. The matter was mentioned in the District Court on some seven occasions before being listed for hearing on 14 November 1985. Although apparently listed by consent, the debtor did not personally appear, but was represented by a solicitor who made an application, on his behalf, for an adjournment on the basis that the debtor was overseas. There is evidence before me that the debtor was not overseas and was in Australia at the time and this has not been denied by the debtor. His counsel admitted to me that the debtor's assertion to Judge Graham of absence from the country was not true.
The application for adjournment was refused by Judge Graham who proceeded to hear the matter ex parte. Prior to the hearing, the creditors had served on the debtor a notice to admit facts and authenticity of documents. This contained inter alia a detailed calculation of the amount claimed to be owing. The debtor filed no notice disputing these matters. The sum adjudged to be owing was clearly determined by the Judge on the basis of that notice and schedule, and a table prepared by the creditors' solicitors showing interest calculations. This table stated that interest was claimed to 14 December 1985 but the amount actually claculates as the correct interest up to 14 November 1985, the date of hearing. His Honour gave judgment against the debtor for $19,318.93 and the debtor was ordered to pay the creditors' costs. The transcript of his Honour's judgment states as follows:
D.H. STAFFORD & SONS T/as D.H.STAFFORD & SONS v OLIVIERI T/as WETHERILL CONSTRUCTIONS
In this matter there will be verdict for the plaintiff in the sum of $13,120.75 with interest thereon in the sum of $6,198.18, making a total of $19,318.93. I order the defendant to pay the plaintiff's costs of and incidental to the action, including the costs reserved on 19 August 1985.
There will be judgment accordingly.
On 6 December 1985 a notice of appeal was filed by the debtor on the basis that the learned Judge had erred in entering the judgment on an ex parte basis and in failing to state his reasons. On 17 November 1986 a notice of motion to strike out the appeal was filed by the creditors in the Court of Appeal Division of the Supreme Court of New South Wales. On 2 December 1987 the Court of Appeal (Hope, Mahoney, and Priestley JJA) dismissed the appeal.
On 19 July 1988 the debtor filed a notice of motion in the District Court to set aside the judgment. On 15 August 1988 the notice of motion was heard by Judge Johnstone in the District Court. The learned Judge reserved his decision and on 9 November 1988 dismissed the motion. Costs were ordered against the debtor.
Bankruptcy noticeOn 7 January 1988 an application for the issue of a bankruptcy notice was filed by the creditors together with a certified copy of judgment obtained on 14 November 1985. The certified copy of judgment was headed:
BETWEEN Donald Harry Stafford, Martha Anne Stafford, Ronald John Stafford and
Alan James Stafford
Plaintiffs
AND Italiano Olivieri
Defendant
The amount adjudged to be owing was expressed as follows:
1. It is this day adjudged that the Plaintiffs recover against the Defendant $19,318.93 on their claim.
2. That the defendant pay the whole of the Plaintiffs' costs of the action including the costs of the adjourned proceedings on the 19th August, 1985.
On 28 January 1988 a bankruptcy notice was issued stating that the creditors, 'Donald Harry Stafford, Martha Anne Stafford, Ronald John Stafford and Alan James Stafford' claimed, in terms of Judge Graham's judgment, the sum of $19,318.93 made up of $13,120.75 for the debt owed and $6,198.18 for interest. No amount in costs was claimed. On 27 February 1988 the notice was served on the debtor.
Extension of time for complianceOn 18 March 1988 an application was filed with the Registrar in Bankruptcy seeking an extension of time to comply with the notice pursuant to section 41(6B) of the Bankruptcy Act (the Act) and seeking an order to set aside the notice. Section 41(6B) relevantly provides:
Where, before the expiration of the time fixed by the Registrar for compliance with the requirements of a bankruptcy notice
(a) proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application to set aside the bankruptcy notice has been filed with the Registrar,
the Registrar may subject to sub-section (6C), extend the time for compliance with the bankruptcy notice.
Section 41(6C) provides that the Court or Registrar, as the case may be, shall not extend time for compliance where the Court or Registrar is of opinion that the proceedings to set aside the judgment or order have not been instituted bona fide or are not being prosecuted with due diligence.
Time for compliance with the notice was extended to 16 May 1988 and the hearing of the application to set aside the notice was stood over to the same day. On 16 May 1988 time for compliance was again extended to 15 August 1988 as was the application to set aside the notice.
On the following subsequent occasions, the Registrar extended time for compliance and stood over the application to set aside the notice by consent:
(i) 15 August 1988 to 5 September 1988
(ii) 5 September 1988 to 26 September 1988
(iii) 26 September 1988 to 10 October 1988
(iv) 10 October 1988 to 31 October 1988
(v) 31 October 1988 to 21 November 1988
(vi) 21 November 1988 to 29 November 1988
The court file discloses that no order was made to extend time for compliance on 21 November 1988.
On 29 November 1988 the matter was referred to the Court by the Registrar pursuant to section 31A(9) of the Act. This provides:
Where at any time before or during the hearing of a proceeding that involves the exercise of a power referred to in sub-section (1) by a Registrar
(a) the Registrar considers that it is not appropriate for the proceeding to be heard by the Registrar under this section: or
(b) an application is made to the Registrar for the proceeding to be heard by a Court,
the Registrar shall not hear, or continue to hear, the proceeding and shall make appropriate arrangements for the proceeding to be heard by the Court.
There was a brief note with the papers stating that on the previous occasion the matter was before the Registrar, no extension of time for compliance was sought. Counsel for the debtor sought from the Court an extension of time for compliance pursuant to section 41(6A) which is in the same terms as section 41(6B) mutatis mutandis. This was not objected to by the creditors and time for compliance was extended to 13 December 1988, the substantive matter being adjourned to that date conditional upon the amount of the debt and interest claimed, amounting to some $19,000 in all, being paid into court by 7 December 1988. An order that an amount of $7000 for costs be paid into Court was also made.
Bankruptcy Court proceedingsWhen the matter came before the Court on 13 December 1988, counsel for the debtor informed the Court that his client had complied with the conditions imposed on the previous occasion, although the court file contained no reference to the payment into Court. The creditors claimed, however, that the order for payment had not been fully complied with because interest had not been paid up to the date of the order, amounting to an additional $10,555.16. An application for that sum to be paid into Court as well was refused and the payment into Court of some $26,000 was deemed to comply with the orders made on 29 November 1988.
The hearing of the application to set aside the notice was heard on 13 December 1988 and on 6 and 27 February 1989, on each of which dates time for compliance with the notice was again extended. On the last occasion, time for compliance was extended to 16 March 1989.
On or about 1 February 1989, the creditors' solicitor appears to have left in the Registry a notice of motion for the payment out to his clients of the monies paid into court by the debtor. This document is with the court papers but does not appear to have been filed. On 2 February 1989, the debtor's solicitor lodged an application for the same order. It is odd that the debtor should be seeking an order that his payment into court be paid out to the creditors and I should have taken it as an error except that the application says that it is proposed to rely on affidavits filed by one of the creditors and by the creditors' solicitor. Although no dates of the affidavits were given to enable their identification, it is difficult to see how they would assist the debtor have the money paid out to himself. One or both of these applications were referred to during the hearing of the matter but neither document was then before the Court. Because of their content, I think that I should now treat them as part of this proceeding but give the parties an opportunity of addressing what should be done with them after these reasons for judgment are made available.
Section 33(1)(c) should also be noted. It provides:
The Court may
. . . .
(c) extend before its expiration or, if this act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.
Application to set aside bankruptcy notice
This application was based on the following alleged defects:
1. The notice incorrectly states the name of the judgment creditorsThe debtor said that the transcript of the proceedings before Judge Graham demonstrates that the judgment was obtained by D.H. Stafford & Sons trading as D.H. Stafford & Sons, in comparison with the notice which refers to the four creditors individually. The creditors argued that the notice was not defective because the notice was identical with the certified copy of the judgment.
In Re Hansen Ex parte Hansen (1985) 4 FCR 590, Beaumont J held that a bankruptcy notice which inaccurately described the judgment creditor was bad, notwithstanding that the judgment creditor had obtained judgment under a former name which had since been changed. At page 592 his Honour referred to In Re Howes Ex Parte Hughes (1892) 2 QB 628. In that case the debtor was required pursuant to the bankruptcy notice to pay "H. and Others, trustees of the Charity known as St John's Hospital, Northampton, 2501" yet the judgment was headed "H. and Others plaintiffs". It was held by the English Court of Appeal that the bankruptcy notice was not in accordance with the terms of the judgment, that it was calculated to perplex the debtor, and that it ought to be set aside.
After emphasising the strict approach which should be taken regarding bankruptcy notices because of the penal consequences, Beaumont J at 594 said:
In my opinion, it is essential to the validity of a bankruptcy notice that the judgment debtor be in no reasonable doubt as to the identity of the judgment creditor. In the present case, the judgment creditor was identified by a name which it had abandoned some considerable time previously. That name was quite different from the name of the judgment creditor at the time of issue of the bankruptcy notice and the judgment debtor could hardly be expected to connect the two corporate names. The judgment debtor could thus have been misled as to the identity of the party with whom he had to deal in order to comply with the requirements of the bankruptcy notice. The notice was accordingly defective (cf Re Gray; Ex Parte Person to Person Financial Services Pty Limited (1980) 48 FLR 379 per Lockhart J (at 382)).
Section 41 (2) of the Act sets out the form required of a notice. It provides:
The prescribed form of bankruptcy notice shall be such that the notice -
(a) requires the debtor named in it, within a specified time (being the time referred to in sub-paragraph 40(1)(g)(i)or(ii), whichever is appropriate) to -
(i) pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or
(ii) secure the payment of the debt or sum to the satisfaction of the court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and
(b) states the consequence of non-compliance with the requirements of the notice.
What is required is 'payment in accordance with the judgment or order'. The notice and the certified copy of judgment clearly indicate that the named individual creditors correspond. Therefore, I am of the opinion that there was no error. In any event, the applicant could not have been misled or perplexed in any way. A copy of the transcript of proceedings cannot be taken as fixing the identity of the judgment creditor. This ground of the applicant's argument fails.
2. Failure to include interest and costs and failure to abandon any claim in respect thereofThe debtor pointed out that the notice requires only payment of the verdict and interest to the date of judgment but makes no reference to costs or interest after judgment. The debtor therefore says that the notice is defective because it leaves an amount yet to be claimed in the notice and it does not indicate that any amount left to be claimed is foregone. Reference was made to In Re H.B. (1904) 1 KB 94; Re Jack 19 ABC 268 and Kleinwort Benson Australia Limited v Crowl (1988) 79 ALR 161. The debtor said that the notice must make clear that no further amount than that specified in the notice is required to be paid. He said that the debtor will be embarrassed and perplexed as to his obligations in relation to the satisfaction of the amount claimed in the judgment, particularly in relation to costs.
The creditors said that generally there is no need to waive, abandon or forgo any part of the claim as suggested by the debtor. It said that interest due on the debt may, but need not, be included in the notice: see Kleinwort Benson. It was submitted that the question of costs should be in a similar position, especially as costs have not yet been taxed. Thus, it is said, a notice can issue for the judgment alone when costs have not been taxed: Re G.J. Ex Parte G.J. (1905) 2 KB 678 at 682.
In Re Farrugia and Re Foster, both Ex Parte Deputy Commissioner of Taxation, unreported Sweeney, Lockhart and Burchett JJ 4 July 1988, the issue was whether the notices were defective by reason only of the fact that they claimed interest to a date prior to the date of issue of the notice and did not in terms abandon or waive any claims for interest accruing after the date specified in the notice. In Farrugia (the reasons for which were incorporated in Foster) the Court said at 8-9:
If the debtor fails to comply with the requirements of a bankruptcy notice and thereby commits an act of bankruptcy, the creditor may include in his petition the full amount of the judgment debt and interest accrued thereon to the date of presentation of the petition. Also, the creditor may prove in the bankruptcy for the full amount due to him for the judgment debt and interest accrued to the date of bankruptcy (sub-s.82(1)). There is no rule of bankruptcy law that requires a creditor to abandon or waive, in the bankruptcy notice, his entitlement to interest on the judgment debt accruing after the date to which the claim is made in the notice.
At page 13 the Court said:
In our opinion the bankruptcy notice before us complies with the statutory requirement of sub-s. 41(2), namely, that it require the debtor to pay the judgment debt in accordance with the judgment. It is true that it does not in terms state that the creditor abandons or waives any claim for interest accruing beyond 26 June 1987, but we see no basis in law for such a requirement.
Commenting on Kleinwort Benson, the Full Court in Farrugia said at 14-15:
Since we wrote these reasons for judgment the High Court has given judgment (on Friday, 1 July 1988) in Kleinwort Benson Australia Ltd v Crowl. We have read the reasons for judgment in that matter where the question was whether the understatement in the bankruptcy notice of the amount of interest was expressed to be calculated in the notice (an understatement of some $23,000) invalidated the particular notice. That question is plainly different from the question with which this appeal is concerned. All members of the Court, Mason C.J., Wilson, Brennan and Gaudron JJ., in their joint judgment at 3 and 4 and Deane J. at 13 noted that a bankruptcy notice is not necessarily issued on the date on which the application for its issue is lodged and that the judgment amount due as at the date of that notice.
Deane J., although in dissent, but not on matters relevant to the present appeal, said at 13 and 14: 'There is one further matter which should be mentioned. Senior counsel for the appellant creditor drew attention to the procedural difficulty in calculating the precise amount of interest up to the date of the bankruptcy notice in circumstances where a petitioning creditor will ordinarily be unaware, in advance, of the precise date upon which a bankruptcy notice will issue. There are, however, a number of accepted ways of avoiding the difficulty without waiving or abandoning the entitlement to interest. One way is to refrain from including interest in the debt upon which a bankruptcy notice is based (see e.g., Re McDonald; Re Mullavey; Ex Parte Australia and New Zealand Banking Group Limited (1977) 20 ALR 276 at pp 282-284). Another is to follow the course adopted in the present case, namely, to include in the debt upon which the bankruptcy notice is based interest only up to a specified date (see, e.g., Re Munson, and see generally, S.Cavanagh, 'The Requisites of Bankruptcy Notices - A Survey of Recent Cases' Australian Law Journal, vol 54 (1980), 278, at pp 280-282)." The majority of the High Court referred (at 6) to Re H.B.
(supra) and expressly rejected the view that it was authority for the proposition that any understatement of the judgment debt invalidates a bankruptcy notice unless it is clear that the excess is waived by the judgment creditor.
The debtor sought to distinguish Farrugia by saying that the notice there contained a clear waiver. I do not believe that to be correct. In this case the debtor said that he did not know what was required of him in order to satisfy the demands of the judgment creditors.
I am of the opinion that the notice clearly stated the amount claimed by the creditors and could not have perplexed the debtor or left him not knowing what was sought in order to comply with the notice. It is clear from the decisions of Farrugia and Foster that this ground of the debtor's case also fails.
3. Alleged non-compliance of the bankruptcy notice with the prescribed form.It was said that the notice does not comply with section 41(1)(a) of the Act. This provides:
A bankruptcy notice -
(a) shall be in accordance with the prescribed form; and
(b) shall be issued by the Registrar.
The prescribed form is set out in section 41(2)(a)(ii) which states:
The prescribed form of the bankruptcy notice shall be such that the notice -
(a) requires the debtor named in it, within a specified time (being the time referred to in sub-paragraph 40(1)(g)(i) or (ii), whichever is appropriate) to - . . . . . . .
(ii) secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and
The relevant part of the bankruptcy notice provides:
THEREFORE TAKE NOTICE that within twenty one days after service of this notice on you, excluding the day on which this notice is served on you, you are required:-
(a) to pay the sum of nineteen thousand three hundred and eighteen dollars and ninety three cents ($19,318.93) so claimed by the Judgment Creditors to the Registrar, District Court of New South Wales, Bridge Street Muswellbrook. OR
(b) To secure the payment of the sum referred to in paragraph (a) to the satisfaction of the Federal Court of Australia or the Judgment Creditors or their agent whose name and address is Messrs. Fitzgerald White Talbot & Co., Solicitors of 186 Kelly Street, Scone, NSW DX 7341 Muswellbrook or compound the sum so specified to the satisfaction of the Judgment Creditors or their agent. AND FURTHER TAKE NOTICE that if within the period set out above you fail either to comply with either of the abovementioned requirements of this Notice or to satisfy the Federal Court of Australia that you have a counterclaim, set-off or cross-demand equal to or exceeding the sum specified in paragraph (a) being a counterclaim set-off or cross-demand that you could not set up in the action in which the Judgment was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.
The debtor said that the notice requires him to compound the debt to the satisfaction of the creditor or his agent, whereas section 41 (2)(a)(ii) requires the compounding to be either to the satisfaction of the creditor, or if the creditor chooses to nominate an agent, then to the satisfaction of that agent. It was said that the notice should not require the applicant to choose between the two alternatives.
In my opinion, the debtor has misread the requirement of section 41(2)(a)(ii). The notice appears clearly to comply with the requirements of that section of Act. This ground of the argument also fails.
4. The amount claimed in the bankruptcy notice is overstatedThe debtor claimed that the amount specified in the judgment as due and payable exceeds the amount in fact due, and asks the Court to go behind the judgment debt, which this Court may but is not bound to do in order to ascertain whether in fact there is a real debt and what it is: Wren v Mahoney (1972) 126 CLR 212. See also my observations and gathering of authority in Re Piccardi Ex Parte George Gregory Grivas (unreported 3 August 1988) and Re Brix-Nielsen Ex Parte Trustee in Bankruptcy (unreported 2 February 1989).
The debtor said that the schedule of invoices, a copy of which was in evidence in this case, and which was used by Judge Graham in the District Court in determining the final judgment debt, contained two significant errors, i.e.
(i) one invoice dated 23 March 1982 should have charged $250 rather than $539. The schedule shows that the relevant invoice claimed the hire of a loader for ten hours at $25 per hour. Somehow instead of the $250 charge the invoice should have shown, the figure in fact stated is $539.00;
(ii) another invoice dated 10 August 1982 should have stated $93.75 rather than the $193.75 claimed. A hiring for 3.75 hours at $25 per hour was claimed but the calculation or typing was in error.
These errors appear on the face of the schedule of invoices. The incorrect amounts became part of the total debt claimed. In my opinion these are patently clerical errors. The method of calculation was clearly shown. The correct amounts were obvious. The debtor could not have been misled or confused for a moment.
The creditors argued that the notice to admit facts was never disputed by the debtor in the District Court and that therefore the claim and the schedule operated as an admission and could not now be gainsaid or denied. This may well be correct, but at the very least, these matters are relevant to the exercise of any discretion, and to the determination of the issues involved when the Court is considering whether to go behind a judgment.
The debtor also said that the amount claimed was overstated by reason of the fact that judgment was entered on 14 November 1985 but interest was claimed to 14 December 1985. The amount said to be excessively claimed was $83.75. As I have earlier said, and as was effectively conceded at this hearing, the interest calculation is in fact correct, and the only error is that the date is wrongly stated to be December rather than November. The creditors put that, in any case, there could be no overstatement where as here the notice complied with the judgment. It said regard should also be had to the fact that the District Court has since declined to set aside judgment and execution could issue for the amount of the judgment. In the case of the interest claim, as there was no actual overstatement, these matters do not need to be decided. I shall deal further with the errors in the two invoices shortly.
The creditors also argued that the debtor had not given notice of a dispute as to the amount owing as required by section 41(5). This provides:
A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis-statement.
A notice was given by facsimile transmission by the debtor to the creditors on 13 December 1988. The creditors said that this notice had not been given within the time allowed for payment, i.e. within twenty one days of service of the bankruptcy notice. The argument was that no extension of time allowed for payment had been sought, although there had been a number of extensions of time for compliance, at present granted up to 16 March 1989. The creditors argued that the time for payment differs from time for compliance. No application was made under section 33(1)(c) by the debtor.
This view cannot be sustained. The time fixed for compliance with a bankruptcy notice means the time within which payment to the satisfaction of the creditor or in accordance with the notice is made. That is the time which has been successively extended under sub-sections (6B) and (6A) of section 41. The provision in sub-section 5 of the same section that notice of dispute must be given 'within the time allowed for payment' in my opinion refers to the same period and is subject to any extensions granted. One reason for an extension would be to enable the debtor to discover whether there is a dispute over the amount owing of which he should or wants to give notice.
In my opinion, the creditors' argument on this matter fails. I think that the debtor has given the requisite notice. On the other hand, I can see no reason in this case to do anything about the judgment. There is clearly a real debt. It has some small formal defects due to obvious clerical error. The debtor has waited for four years to draw these matters to attention despite many earlier opportunities to do so, and has made out no case for the exercise of any discretion in his favour in relation to the matter. In my opinion, the bankruptcy notice fully complies with the judgment and should not be set aside.
Ordinarily that would be a complete determination of this matter. However, in view of the long and disgraceful history of this litigation, I shall briefly deal with the issues that would arise if this way of approaching the matter was wrong.
The IssuesThey are:
(a) If a bankruptcy notice claims the correct amount of the judgment debt, but the judgment debt is shown to be excessive, can the bankruptcy notice be said to include a defect or irregularity by way of overstatement?
(b) If so, is the defect or irregularity substantive, or is it formal and therefore curable by section 306? This provides: Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the Court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
(c) If merely formal, has substantial injustice been caused?
The Law
Section 41(6) provides:
Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with sub-section (5), he shall be deemed to have complied with the notice if, within the time allowed for payment, he takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.
In Kleinwort Benson the issue before the court was whether a bankruptcy notice is defective if it misstates the amount due to a creditor. In that case, the amount owing was understated. At 163 the majority of the High Court (Mason CJ, Wilson, Brennan and Gaudron JJ) said:
Misstatement of the amount due to a creditor is not necessarily fatal to the validity of a bankruptcy notice. Sub-sections (5) and (6) of s 41 of the Act make specific provision for overstatement, providing that a bankruptcy notice will not be invalidated by reason only that the sum specified in the notice as due exceeds the amount in fact due, 'unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis-statement': sub-s (5).
In Re Williams Ex Parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 the debtor gave notice pursuant to section 41(5) disputing the validity of the bankruptcy notice on the ground that the amount due was overstated. In agreeing that there was in fact an overstatement, Fisher J held that the bankruptcy notice was invalid. His Honour referred to Re Prossimo; Ex Parte de Marco (1952) 16 ABC 86 and Re Murray (1959) 18 ABC 152, and said at 558:
On this ground I am of opinion that the bankruptcy notice is invalid in that it issued for a sum which exceeds that for which execution might lawfully be levied: Ex Parte Ide
(1886) QBD 755; Re Richards (1947) 14 ABC 112. I am happy to follow and apply the reasoning of my predecessor in this jurisdiction which I have set out in full earlier in these reasons. The comment can fairly be made that I am setting aside the bankruptcy notice on two grounds, both of which are highly technical, and in circumstances where there is no evidence that the debtor was in fact misled. However, the practice of the courts exercising jurisdiction in bankruptcy is, for good reason, to construe bankruptcy notices strictly and to require strict compliance with the provisions of the relevant Acts and Rules of the Court. A more strict compliance is required in the case of a bankruptcy notice than of a petition for a sequestration order, the consequences of non-compliance with a bankruptcy notice are penal or quasi-penal in nature (Re a Debtor (1951) Ch 313 at 318 and Re a Judgment Debtor (1907) 2 KB 474 at 478) and creditors who avail themselves of proceedings of this nature to enforce payment of debts must be prepared to adhere to the requirements of the Acts and Rules, however technical they may appear to be (Re Wimborne (1979) 24 ALR 494 at 498).
In Re Walsh (1982) 47 ALR 751, Lockhart J considered the same issue. He held that a bankruptcy notice is invalid if the overstatement could reasonably mislead the debtor on whom it is served, but not otherwise. At 91 he said:
Re A Debtor, 478 of 1908 (1908) 2 KB 684 and Prossimo's case are illustrations of cases where bankruptcy notices were held invalid, but they must all be viewed in the light of the overriding question whether the mistake in the notice could reasonably mislead the debtor. Indeed, in Re A Debtor, 478 of 1908 (1908) 2 KB 684 itself, it seems to me that Farwell LJ. at 690 and Kennedy LJ. at p 691 considered the effect of the validity of a bankruptcy notice of an overstatement of the amount due by reference to whether it could mislead or embarass the debtor. The same analysis of that case was made also by Harman J. in Re A Debtor, No.21 of 1950 (1951) 1 Ch 313, at p 320. I note that Harman J's judgment was approved by the Privy Council in Pillai's case (1970) AC 1124, at p 1135. In my opinion the cases do not establish an invariable rule (I leave aside for the moment the effect, if any, of s.41
(5) and (6)) that an overstatement in a bankruptcy notice of the amount due necessarily avoids the notice. It has this consequence if the overstatement could reasonably mislead the debtor on whom it is served, but not otherwise.
It is difficult to reconcile this decision with Re Williams (above).
In Re Greenhill; Ex Parte Myer (NSW) Ltd (1984) 5 FCR 84 Morling J held that an overstatement in a bankruptcy notice of the amount actually due renders the notice invalid whether or not the overstatement could reasonably mislead the debtor. After referring to the judgment of Lockhart J in Re Walsh (above), Morling J said at 86:
Notwithstanding the observations of Lockhart J in Re Walsh, I think I should follow the above cases. The decision of Lockhart J in Re Walsh was carried on appeal, first to the Full Court and then to the High Court. In the Full Court, Re A Debtor, Re Prossimo and Re Williams were all referred to but were not discussed since it was said that they did not touch upon the point under appeal: see 47 ALR 616 at
620. But in the High Court, Gibbs CJ, Mason, Brennan, Deane and Dawson JJ said:
'There is not doubt that a bankruptcy notice will be invalid if the sum specified as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s. 41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground.'
See Walsh v Deputy Commissioner of Taxation (1984) 58 ALJR
368. It is true that this dictum of the High Court was strictly obiter, but nevertheless it is precisely in point and it is strongly confirmatory of the correctness of the decisions in Re Prossimo, Re Murray and Re Williams. Consistent with the above authority I think that I should hold that the bankruptcy notice served upon the debtor is invalid. In a sense this is an unfortunate result, since the ground of invalidity can fairly be said to be technical. However, as Fisher J observed in Re Williams, the practice of the courts exercising jurisdiction in bankruptcy is to construe bankruptcy notices strictly and to require strict compliance with the provisions of the Act. The consequences of non-compliance with a bankruptcy notice are serious and there is the highest authority that strict compliance with the requisites of a bankruptcy notice is essential to its validity. See James v Federal Commissioner of Taxation
(1955) 93 CLR 631 at 644.
This concept that bankruptcy notices must strictly comply with the statutory requirements was recently underlined, but significantly qualified, by the High Court in Kleinwort Benson. In his dissenting judgment Deane J at 167-168 said:
It has long been a fundamental precept of the law of bankruptcy that a 'bankruptcy notice, which is the foundation of a bankruptcy is with penal consequences, is a matter in which great strictness is required' (per Cozens-Hardy MR, Re a Judgment Debtor, 530 of 1908
(1908) 2 KB 474 at 476-7, see also James v FCT (1955) 93 CLR 631 at 644). A defect in a bankruptcy notice will invalidate it 'except in the case of a merely formal defect' (per Vaughan Williams LJ, Re OCS (a Debtor); Ex Parte the Debtor (1904) 2 KB 161 at 163; see also Re a Debtor, No.21 of 1950; Ex Parte the Debtor v Bowmaker Ltd (1951) Ch 313 at 317). If a defect in a bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it does not constitute an act of bankruptcy. To comply with the above rules, a bankruptcy notice must correctly state the amount of the debt upon which it is based. If interest is included in the claim under the bankruptcy notice, it must be accurately calculated and stated. Otherwise, the bankruptcy notice is invalid (Re McDonald; Ex Parte Elder Smith Goldsbrough Mort Ltd (1978) 18 ALR 505 at 507). There are two qualifications that need to be made to that general proposition. The first is that, if the misstatement is 'a mere clerical error . . which could not mislead or embarrass the debtor, because he could see on the face of the document . . . what was the amount which was really claimed from him' (per Kennedy LJ, Re a Debtor, 478 of 1908, (1908) 2 KB 684 at 691 explaining Ex Parte Johnston; Re Johnson (1883) 25 Ch D 112), the defect will be merely a formal one which may be cured pursuant to s 306 of the Bankruptcy Act 1966 (Cth) which deals with formal defects and mere irregularities. The requirement is not that the mistake did not actually mislead the debtor. It is that it could not have reasonably so misled him (Bowmaker, at 319-320; Pillai v Comptroller of Income Tax (1970) AC 1124 at 1135; James, at 644). The second qualification is that the Bankruptcy Act, in s 41(5) and (6), contains express provisions which may operate to avoid the invalidating consequence of an overstatement of the judgment debt.
Similar remarks were made by the majority of the Court at 165-166:
The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v FCT (1955) 93 CLR 631 at 644; Pillai, at 1135. In such cases the notice is nullity whether or not the debtor is in fact misled: Re a Judgment Debtor, 530 of 1908 (1908) 2 KB 474 at 481. If the amount specified in the bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s 41(2)(a)(i) - the only requirements presently relevant - are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.
It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.
Those principles have direct relevance in this case where the amounts claimed in the judgment and the notice are identical. On the basis that what is being spoken of in these statements are inaccuracies in bankruptcy notices, I can see no differences in principle between understatement and overstatement.
ConclusionsMy conclusions are therefore as follows:
(1) An overstatement in a bankruptcy notice of the amount due under a judgment will normally make the notice defective.
(2) Such an overstatement will normally be a substantive and not a formal curable defect unless it is due to one or more clerical errors which could not reasonably have misled the debtor.
(3) There is no such overstatement here because the amount sought in the bankruptcy notice is identical with the judgment.
(4) The overstatement here occurs in the judgment in circumstances which are entirely due to clerical errors obvious on the face of the documents and of which the debtor should and would have been fully aware. I can see no reason to re-litigate the original proceedings.
(5) If in some way the overcharge in the judgment affects the notice, it is my view that the debtor could not have been misled in any way. This defect in the notice, if that is what it is, is formal only and is thus curable under section 306. There is no injustice at all to the debtor.
I dismiss the application and order the debtor to pay the creditors' costs. Subject to proof being supplied to the satisfaction of the Registrar of the relevant calculations for debt and interest to date, my inclination is to order the payment out to the creditors of the sum of $19,318.83 paid into court on 8 December 1988 for the debt and interest. Likewise, subject to agreement on or taxation of costs, and to the extent of the amount agreed or ordered in respect thereof, my inclination is to order that the sum paid into court on the same day in respect of costs be paid out to the creditors, and any balance paid out to the debtor. However, I shall hear the parties before making final orders in respect of these matters.
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